The African Development Bank Confronts A Changing Africa

Donald Kaberuka, President, African Development Bank Group. Photo taken from the OECD Development Centre’s flickr photostream used under a creative commons license.

By Daniel Runde

Last week I was in Abidjan, Ivory Coast (currently and thankfully “Ebola free”) and had the opportunity to spend time with the board and the senior management of the African Development Bank. The bank was founded by 23 African countries in 1964, and today has authorized capital in excess of $43.5 billion. The United States joined in 1983, and is the bank’s largest non-regional shareholder. Over the next ten years the AfDB will face unique opportunities as well as unprecedented challenges to relevance. The new President slated for selection in 2015 should be chosen with these challenges and opportunities in mind.

Donald Kaberuka, a former Rwandan finance minister, has led the ADB since 2005. Mr. Kaberuka oversaw Rwanda’s post-conflict economic recovery, and is well-regarded in both Washington and Africa. At the time of his selection, he was seen as the choice of the African “francophone” countries (French is one of AfDB’s two official languages) despite the fact that Rwanda’s official language is now English. His tenure is limited to two five-year terms, the second of which will conclude in May 2015.

As President of the AfDB, Mr. Kaberuka pushed the bank to approve a ten-year strategy focused encouraging private sector activity to absorb the 15 million young people that join the work force every year in Africa and programs that address the nexus of food, water and energy. To achieve these goals, his board approved an operational orientation that targeted:

Infrastructure Development

Regional Integration

Policy to Support and Enable Private Enterprise

Improved Governance

Skills and Technology Acquisition

In order to meet these challenges, Mr. Kaberuka has increased AfDB total public sector operations from $3.02 billion in 2005 to $5.14 billion in 2013 and his private sector support from $257.4 million in 2005 to $1.62 billion in 2013. He also launched a new fund called Africa50, which has a $10 billion capital target to mobilize private finance for African infrastructure projects. On a separate deal in May of this year, Mr. Kaberuka signed an agreement with China to form a $2 billion ”Africa Growing Together Fund”, which will allow China to join projects from the AfDB’s sovereign loan portfolio.

Mr. Kaberuka has ably steered the AfDB against the backdrop of historic change in Africa. The continent has grown at an average rate of 5.3 percent since 2004. While OECD economies were slammed by the 2008-20009 financial crisis Africa avoided serious damage, in large part due to strong technical leadership from a number of African Finance Ministries (I would note that many leaders in these ministries are U.S. or U.K. trained). Today, 70 percent of Africa’s output and investment is from the private sector. Even more telling, the private sector accounts for 90% of the jobs in Africa.

On a continent where remittances and foreign direct investment now outpace foreign aid, all donor agencies have to reconsider their role. The leadership of the African Development Bank is aware of the changed landscape– attracting investment capital, not foreign aid, is the key to jobs and progress. The AfDB has embraced this change, and in terms borrowed from the bank strategy approved last year, will focus on serving as an “adviser, knowledge broker, catalyst, and convener.”

Whoever is chosen as be the next President of the AfDB will face a series of significant challenges. First, the continent is getting wealthier. While that’s great news, it means that the bank must reassess its role. Five African countries are now investment grade, and in theory, no longer require the money that the AfDB has to offer. The number of investment grade countries on the continent will continue to grow.

Second, the map of global poverty is shrinking. In ten years the majority of poor countries will be clustered in Africa, and organizations that “compete” in the AfDB’s space, namely the World Bank, are going to be tempted to pursue overlapping agendas. The U.S. and other large shareholders need to sort out a division of labor between the African Development Bank and the World Bank NOW.

Third, given the importance of the private sector and FDI on the continent, the AfDB needs to further sharpen its focus on helping governments facilitate entrepreneurship and private enterprise. Part of this equation is the necessity of providing large-scale training and skill building for budding African entrepreneurs. Many of the 15 million young people entering the workforce in Africa this year will not be absorbed by formal companies- entrepreneurship offers an alternate route to productive economic engagement.

Fourth, given this changing context, the AfDB’s personnel will require new skills and an increased appetite for risk. Bank professionals need to be in-country solving problems with clients, and less focused on internal processes.

Who will be the next President of the AfDB? If Trevor Manuel of South Africa or Ngozi Okonjo-Iweala of Nigeria had shown interest then it would be theirs for the asking. It may be that it’s Anglophone Southern Africa’s “turn” to choose the bank’s next President, but if those countries put forward a weak candidate, it’s an open field. Regardless of who is chosen as his successor, Mr. Kaberuka is leaving big shoes to fill.

Daniel F. Runde holds the William A. Schreyer Chair in Global Analysis and directs the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS).